Saturday, March 20, 2010

APPELLATE DECISIONS: Subrogation/reimbursement language in policy did not include UM/UIM proceeds

The Court of Appeals in a case of first impression interpreted an insurance policy's subrogation language to rule that the clause was ambiguous and did not include a claim against the uninsured motorist policy. The language in the policy - "claim against any person, firm, or corporation for the injuries and damages sustained as a result of the occurrence on or about the above referenced date," and the language in the subsequently signed reimbursement agreement (which was objected to as changing the terms of the policy and without additional consideration) - "the amount paid by the third party which represents reimbursement to the Insured for such expenses" were interpreted to include a third party tortfeasor and not another insurer.

This case may be limited to the policy language concerned but reminds us that the insurance policy will be interpreted against the drafter. Furthermore, dicta in the decision reveals an attitude in the appellate courts to finally recognize the very existence of a subrogation entitlement against UM/UIM proceeds is not to be cavalierly applied and may not exist regardless of policy language, to wit: "Not only does this appear to be a case of first impression in Kentucky, but we recognize there is no clear consensus in other jurisdictions as to whether a health care contractor has a subrogation right (under contractual or equitable terms) against a UIM/UM carrier or UIM/UM proceeds." This issue did not need to be addressed as the language of the policy fell short.

Although it was clear that this COA did not express anything further than the ruling hinged on the particular policy language, I would submit that the door has been left ajar.

I further submit that the practice of insurance carriers writing contracts of adhesion which expand the former concepts of subrogation (sitting in the shoes of the claimant for a recovery of their payments) to a claim of "reimbursement" from any and all sources of recovery (and without consideration of attorneys fees in obtaining the recovery or a reductions for comparative negligence or made whole plus subordinating the insured's claims) is one-sided, arbitrary, and unevenly applied (since there is no reduction in the premiums paid for those who lose part of their claim to the subrogor/reimbursed insurer).

Worse yet, the subrogor/reimbursed insurer does not require all insureds to obtain UIM/UM coverages as a condition to obtaining health insurance, does not contribute to the payment of the premiums, is not a party to the UIM/UM agreements, and allows the putative savings inuring to the recovery to inure to the benefit of all without any concomitant benefits in future premiums etc to the insured who watches his or her recovery go down the proverbial deep pocket of the insurer! Insurance law is typically a state regulated enterprise, and insurers like AIG and others who get federal assistance to help them through their mismanagement of investments to exploit their insureds is unforgivable and needs to be regulated by the state. If the legislatures won't step up to the plate, then the Courts will need to address these issues. And the Courts will not be afforded the opportunity with attorneys protecting the injured claimants and challenging the practice, policies and procedures in Court.

Equitable concepts of sharing in the costs of the recovery, reducing the lien for comparative negligence, considering the make whole doctrine, AND sharing proportionately in the recovery based upon the insured's and insurer's damages harken back to the common law and needs to given effect. These concepts developed out of equity and fairness. Abrogating them in one-sided agreements for the reasons stated above should not be allowed to ignore scrutiny in the courts.

Now you are probably wondering what is the source of this rant. Well, I (Michael Stevens) together with Kevin Burke were counsel for the the claimant. It is no wonder under these circumstances that claimants would feel that the subrogor's swooping down to steal his recovery converting his policy of insurance for health benefits to nothing more than a loan and robbing him of the benefits of his UM policy.

Finally, the result was the right result. Hopefully, this soliloquy will encourage others to challenge the subrogation/reimbursement language in policies which reduce and deny altogether one's recovery rights under a policy of insurance (UM and UIM).

The bottom line is that UIM and UM policies are designed to compensate an INSURED for losses that are not recovered against the tortfeasor who either had no liability insurance or insufficient liability insurance without allowing the insured a double recovery for the same items of damages. UM/UIM policies are purchased to protect the individual claimant for a loss. UM/UIM policies are not purchased to protect a health insurer. Nor are they designed or intended to insure another insurer for losses and transfer the money to another insurance company with the net effect of DENYING the insured of any recovery whatsoever.

Meanwhile, here's the squib with links to the full text of the decision. Please do not misunderstand this post. The decision as to the insurance policy is correct, but this decision (like Coleman vs. Bee Line and the Jewell decision) leaves some important issues hanging as the edges of this problem are addressed only.

Opinion by Judge Wine; Judges Clayton and Dixon
concurred. The Court reversed and remanded a summary judgment in
appellee’s favor on its intervening subrogation/reimbursement claim from
settlement proceeds appellant received from his uninsured motorist
carrier. Appellee was the claims administrator for a disability policy
purchased by appellant, an independent contractor. The Court held that
the trial court erred in granting summary judgment to appellee and
denying summary judgment to appellant on the intervening claim. The
insurance contract was both ambiguous and subject to a reasonable
interpretation that appellee would only seek reimbursement from a
third-party tortfeasor, not another insurer. Therefore, appellant was
entitled to summary judgment.

The following language is also noteworthy on the extent of any contractual or equitable subrogation rights or entitlements against a underinsured or uninsured motorist benefits policy.

In Suchy v. Illinois Farmers Ins. Co., 574 N.W.2d 93 (Minn. App. 1998), the Minnesota Court held a health insurer did not have an equitable subrogation right against UIM award. The Ohio Court of Appeals held in Csik v. Blue Cross & Blue Shield of Ohio, 109 Ohio App.3d 9, 671 N.E.2d 1028 (1996), that the health insurer did not possess a contractual subrogation right against the UM carrier as "responsible third party" is an ambiguous term. Likewise, in Employers Health Ins. v. General Cas. Co. of Wisconsin, 161 Wis.2d 937, 469 N.W.2d 172 (1991), the Wisconsin Supreme Court concluded that the health insurer did not possess a contractual subrogation right against the UM carrier where the health insurer was subrogated to the insured’s “right to recover damages from a responsible third party”, and further concluding that the health insurer had no equitable subrogation right against the UM carrier. Dailey v. Secura Ins. Co., 164 Wis.2d 624, 476 N.W.2d 299 (Wis. App. 1991) (health insurer did possess a contractual subrogation right against the UM carrier, as "any party who may be liable" is not limited to wrongdoers and includes other insurers).